- December 2, 2009
- Transportation of the Future
Warren Buffett isn’t the only one who sees trains as the transportation of the future. Oil-rich nations in the Middle East are converting their petrodollars to railroads in one of the world’s biggest regional infrastructure build-outs.
The Gulf Cooperation Council has plans for a 1,300-mile railway linking all six of its member states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates). Combined spending is estimated at more than $100 billion.
That is just a fraction of the amount available for investing to support future growth. Combined assets for the region’s four largest sovereign wealth funds (Abu Dhabi, Kuwait, Qatar and Saudi Arabia) total $1.15 trillion, and that’s just a portion of the wealth amassed in that dynamic part of the world.
In September, a $7.6 billion rail system was opened in Dubai to try to ease its bumper-to-bumper road congestion. An estimated 1.8 million passengers will use the line each day.
Saudi Arabia is building a $5.3 billion rail line to connect the Islamic holy cities of Mecca and Medina as part of the country’s $400 billion infrastructure plan.
And last week, Qatar’s sovereign wealth fund signed a $26 billion construction deal with German railroad operator Deutsche Bahn for a local system for Doha, Qatar’s capital and largest city, and freight lines to bordering trading partners. Qatar is the world’s largest producer of liquefied natural gas, a rapidly growing source of energy.
The population of Doha is expected to double over the next 10 years and the country, which hosted the 2006 Asian Games, is said to be putting together bids for the 2020 Summer Olympics and 2022 World Cup.
A Qatari official hailed the 15-year Deutsche Bahn deal as “the next step in the creation of this visionary Qatari project that will truly revolutionize the ease and convenience by which people travel.”
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
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- October 30, 2009
- Five Thousand Pounds of Steel are Falling
Drivers on San Francisco’s Bay Bridge were greeted by 5,000 pounds of metal on Wednesday when a recently repaired eyebar snapped under pressure from high winds.
Unlike the 2007 bridge collapse tragedy in Minneapolis, no one was killed and only one motorist suffered minor injuries. A lucky break since the accident happened during rush hour on a bridge that services 280,000 commuters every day.
This isn’t the first newsworthy item in the Bay Bridge’s history, as a 50-foot section of the upper level collapsed onto the bottom level during the 1989 Loma Prieta earthquake. The image was quickly beamed to millions of homes around the U.S. as they were tuning in for Game 2 of the World Series.
Though a major disaster was averted this time, the clock is ticking unless measures are taken to rebuild, reinforce and restore America’s crumbling infrastructure.
One in four of America’s bridges are either structurally deficient or functionally obsolete, according to the American Society of Civil Engineers. Overall, they rate America’s 600,000 bridges a "D." The ASCE estimates there is a nearly a $7 billion gap between what is needed to be invested in order to improve conditions versus what actually is being invested.
Hopefully, that and similar domestic infrastructure spending gaps will start to close before the problem becomes a crisis.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. #09-760
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- October 23, 2009
- Big Cities, Big Opportunities
One of the biggest drivers of global infrastructure is the rapid rate of urbanization experienced in the developing world.
The reason is simple – roughly 70 million people per year in developing countries are moving to cities, so there will need to be more roads, water systems, housing and electrical generation.
Nowhere is this trend more apparent than in China, which already has 100 cities with more than 1 million people. It is expected to eventually have 30 cities with more than 10 million people.
As you can see in the chart from UBS, Asia will be the main source of this urban growth. The United Nations says that over 1 billion Asian people will move to urban areas by 2030. Another 500 million people are expected to migrate to urban areas in Africa.
While this trend has picked up in pace in recent years, the growth of urban centers in the developing world has already been an established trend. Of the 20 largest urban areas in the world in 2005, only four were in the developed world (Tokyo, New York, Los Angeles and Osaka, Japan).
The infrastructure build-out truly is a global opportunity. As much of the infrastructure focus in the developed world centers around repair and replacement, the focus in the developing world is around providing people with basic needs taken for granted by many of us.
We believe emerging-market governments that commit to ambitious infrastructure programs will be the ones with the best economic growth prospects in the coming years.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. #09-740
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- October 20, 2009
- A Quick Look at Gold Trends
With the price of bullion at all-time highs, there’s a raging debate on gold as an investment – is it overbought or can it go still higher? What’s the inflation risk to the dollar? Should we be more worried about deflation?
Every Friday we try to address the factors affecting gold in our award-winning Investor Alert, which recaps the week just ended and also looks forward to provide insights on what might lie ahead. Along with gold, the Investor Alert covers energy and natural resources, global emerging markets, domestic equities and the bond market.
We encourage everyone with an interest in our key sectors to join the 23,000-plus individual investors who now subscribe to the Investor Alert and the 10,000 investment professionals who receive its sister publication, the Advisor Alert. Signup is free and easy – just follow the appropriate link.
To give you an idea of the Investor/Advisor Alert’s value, here are a few of the gold-related items from the latest issue:
- International Monetary Fund data shows that currency holdings among reporting central banks reduced the U.S. dollar’s weight to 62.8 percent as of June 30, the lowest on record. The shift in reserves to euros and yen confirm that world leaders are acting on threats to diversify out of the dollar based on lagging performance on U.S. assets and a weakening dollar.
- According to UBS, investment growth is not coming from the world’s largest bullion-backed exchange-traded fund, but rather from private purchases of bullion and Indian buying during the festival season. COMEX net long positions stood at a record high of 23.5 million ounces.
- Macquarie Bank said exchange-traded funds backed by physical supplies of industrial metals may potentially drive prices higher than index funds that buy futures contracts because there are currently talks of regulatory measures being imposed in the futures markets.
- An analysis by the Bank Credit Analyst shows gold and silver markets to be fairly overbought, but BCA expects that any correction should prove short-lived in the absence of a reversal in the dollar and/or deterioration in liquidity conditions. The Bureau of Labor Statistics says the consumer price index for jewelry in the U.S. rose to its highest level since January 1996.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The COMEX is a commodity exchange in New York City formed by the merger of four past exchanges. The exchange trades futures in sugar, coffee, petroleum, metals and financial instruments. The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns. #09-728
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- June 4, 2009
- Where Have My Highway Trust Funds Gone?
The Highway Trust Fund said this week it will need an additional $7 billion by August to finance projects already promised to states and keep the fund from going bankrupt.
The HTF is the primary source of funding for road and bridge projects across the United States. It is funded through gasoline taxes and special taxes, mostly on heavy-use vehicles like trucks.
This means that HTF relies on highway use for its funding. Traffic volume, however, has been generally trending downward since before the credit crisis began, according to federal statistics.
This isn’t the first time the HTF has been on the edge of solvency. Just last September Congress approved a special $8 billion rescue to keep it from going broke.
And more bailouts are possible. The federal gas tax has been 18.4 cents per gallon since 1993, but chances are slim that it would be raised any time soon, given the struggling economy.
One alternative would be to unlock stimulus funds sent out to the states. As it stands now, these funds can’t be used to cover state highway budget shortfalls.
A longer-term solution recommended by Congressional panels is a mileage-based tax system under which the distance a vehicle travels is calculated using a GPS-like tracker. This would be a complex and costly solution that would take a decade or more to put in place.
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